The $30 trillion decathlon – Mckinsey

Wed, 04 Jun 2014 17:23:54 GMT

the number of people earning more than $10 a day, by 2025 that number will nearly double again, to 4.2 billion consumers


by 2025 annual consumption in emerging markets will rise to $30 trillion and
account for nearly 50 percent of the world’s total. Even under the most pessimistic scenarios for global growth, emerging markets are likely to outperform developed economies significantly for decades.


Leading the way is a generation of consumers in their 20s and early 30s who are confident their incomes will rise and are willing to spend in order to realize their high aspirations.


Companies failing to pursue these consumers will squander opportunities to build positions of strength that, history suggests, could be long lasting: in 17
major product categories in the United States, the market leader in 1925 remained the number-one or number-two player for the rest of the century.


The scale of the modern exodus from farms to urban areas has no precedent. Over the next 15 years, just 440 emerging-market cities will generate nearly half of global GDP growth.


Midsize cities frequently offer the best opportunities. The notion that smaller cities can offer bigger opportunities isn’t new. Many multinationals nonetheless assume that developing local strategies for “middleweight” cities can come only at the expense of economies of scale.


Demand for a particular product or category of products typically follows an S-curve: there is a “warm-up zone” as growth gathers steam and consumer incomes rise, a “hot zone” where consumers have enough money to buy a product, and a “chill-out zone” in which demand eases.


Purchases of products with low unit costs, such as snacks and bottled drinks, accelerate at a relatively early stage of the income curve, beauty products somewhat later, and luxury products later still. Refrigerators tend to have a steep adoption curve that flattens out as the market reaches saturation, while spending on clothing displays a more sustained growth pattern.


Adoption patterns of products within the same general category can vary widely, too. For example, in Beijing, purchases of refrigerators start to take off at annual incomes of $2,500 a year but slow above $6,000, while the acceleration for washing machines doesn’t begin until incomes approach $10,000.


In China, rising incomes, greater awareness of the benefits of baby formula, and concerns about the safety of low-end brands have helped make baby food the fastest-growing product category in the supermarket sector. Between 2000 and 2010, annual sales of baby formula in China soared from RMB 6 billion to RMB 36 billion, despite the number of births remaining stagnant at 16 million a year.


more than half of all Chinese  urban households, for example, will be solidly
middle class by 2020, up from 6 percent in 2010— companies are learning to craft more nuanced product strategies.


On average, emerging-market consumers are younger, with 63 percent aged 35 or under in 2010, versus 43 percent in developed countries. And they
are highly receptive to branding efforts but also far more likely than developed-market consumers to dump one brand for the next new thing.


McKinsey surveys find that product recommendations from friends or family
are twice as important for consumers in China and nearly three times as important for consumers in Egypt as for those in the United States and Britain. Chinese consumers are more likely to trust online recommendations than TV


In China, 45 percent of consumers make purchasing decisions inside shops, compared with 24 percent in the United States.


In China, online sales in many product categories are growing explosively. One of China’s largest retailers, Suning, said it aims to boost online sales to 45 percent of total revenue by 2020, up from 7 percent today.


During the next 100 years, the companies looked to as the world’s greatest will surely be those that win in emerging markets.